There was further loss of forward economic momentum last quarter.
Moreover, the Philadelphia Federal Reserve Bank indicated that Q4
began with little improvement. The Bank's October index of regional
factory sector activity improved just slightly to 1.0 from an
average -1.1 for all of last quarter. The latest about matched
expectations for a reading of 0.0. Nevertheless, it still suggested
modest economic growth and compared to readings near -40.0 at the
recession's weakest.

During the last ten years there has been an 76% correlation
between the level of the Philadelphia Fed Business Conditions Index
and the three-month growth in factory sector industrial production.
There has been a 78% correlation with q/q growth in real GDP.

There was broad-based but modest improvement amongst the index
components. The shipments index rose to 1.4 from -2.5 during Q3. New
orders, however, showed less improvement but the average workweek
rose to its highest since July. Behind the factory sector's general
malaise has been continued liquidation of inventories. The October
figure fell to -18.6 from -7.9 during Q3. These figures compare to
modest accumulation in the spring. Through it all, factory sector
payrolls have continued to grow modestly. The October index was near
the levels of the prior several months. During the last ten years,
there has been a 75% correlation between the index level and the
three-month change in manufacturing sector payrolls.

The prices paid index also improved to its highest level since
May but remained down from the 2008 high. Thirty-four percent of
firms raised prices. During the last ten years there has been a 70%
correlation between the prices paid index and the three-month growth
in the intermediate goods PPI. There has been an 81% correlation
with the change in core intermediate goods prices.

The separate index of expected business conditions in six months
jumped to its highest level since April. Expectations for new
orders, shipments and employment rose sharply along with expected
capital expenditures.

The figures from the Philadelphia Federal Reserve can be found in
Haver's SURVEYS database.